Trader Status and Mark-to-Market

1245 said:
I guess my question is that as an individual, if you claim to be a professional trader on your tax return, then don't you have to show your income and expenses from trading as a sole prop business? The IRS might recognize that as earned income not investment income.

Any accountants reading this?
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if you take the trader status, you will fill out a sched C, but it will have no income on it, only expenses.
 
Luck being far more important than skill, it appears there's a good chance I will end up owing taxes on my trading for 2015. I did a little over 250,000 shares (one way) in October and I dread having to fill out a Schedule D with all those buys and sells especially since most of it was with a tier size of 200 shares.

So I started looking up the rules. I found the IRS site on how you choose trader status and "mark to market":
http://www.irs.gov/taxtopics/tc429.html

I trade stocks only. From what I understand, I will apply for M2M for 2015 taxes before April 15, 2015 (when my 2014 taxes are due) and things will be simpler. And for my 2014 taxes, instead of printing out the phonebook, I'll attach my brokerage statements.

Since I am usually flat at the end of the day, it's no big deal to be flat at the end of the year. But there are some stocks I trade regularly. I'm wondering if I scalp YHOO in December with my last trade lasting 2 minutes on the final trading day, could they nail me for a wash rule when I scalp it again starting in January? My guess is that applying for M2M status for 2015 will eliminate this.

This is how I understand my situation at this time. But I've only been looking at it for a couple hours. The tax laws are complicated and I'm not the sharpest tool in the shed. I will have a pro take care of my 2014 taxes. I appreciate comments and advice.

Also, I have an IRA and have traded the same stocks in it that I have in my PDT account. But the trades have always been net on the same side. I don't see how this will bring up any problem. The stocks were extremely liquid and I never bought in one any time or price close to when I sold in the other. So I don't think there's any problem there....
 
wiesman02 said:
I've got a couple questions on trader status and mark-to-market for equities only as I'm considering adding equities to my daytrading arsenal now. The past threads on this were very confusing that I searched for. So here are my questions.

1) Is there a difference between trader status and mark-to-market ? I only want to eliminate wash sale rule.

2) Did I have to state my intention for this by April 2014 for the 2015 trading year ? If not, what do I need to do ?

3) Anything else that I'm missing ?
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You can claim trader tax status (TTS) for 2014 if you qualify - meet our Golden Rules - and there is no election required.

Section 475 MTM ordinary gain or loss treatment - which exempts a trader from wash sales and capital loss limitations on business trades - must be elected on time. For existing individuals, its by April 15 of the current tax year (i.e. 4/15/14 for 2014). Only traders qualifying for TTS may use Section 475, investors may not. You can form a new entity and a new taxpayer (entity) may elect Section 475 within 75 days of inception. There is very little time left in 2014 to do this. Or, form the entity Jan 1 and it breaks the chain on wash sales going into year end. Learn more here http://www.greentradertax.com/trader-tax-center/trader-tax-status/section-475-mtm-accounting/.
 
I was hoping you would comment. Robert, if a trader claims this status, are they stuck paying double SS on their gains?
 
1245 said:
I was hoping you would comment. Robert, if a trader claims this status, are they stuck paying double SS on their gains?
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Robert is a professional, I am just an amateur, he was in the business before I ever started.

I already told you, all trader status does is allow you to write off your expenses. It has no affect on anything else tax related in your life.

When I started out, I wasn't making that much and every penny counted, so I filed with trader status. But otherwise, unless you have really big expense, it's just another red flag if you have anything else fishy going on you don't really want the IRS to investigate.

Most get into it with the IRS trying to write off their "home office" which for me is about a third of my apartment. But, then again, I'm sitting in my "office" waiting for a hockey game to begin, because I bet the under. I always bet the under.

Someone here posted he lost his home office deduction because he had a dog food bowl in it where not only did he trade but it was also used for feeding his dog.

For crying out loud man, how much are you paying in expenses each year? Enough to make a difference if you could write them off?
 
loyek590, I appreciate your response, however the response from a tax expert would make me more comfortable, as I'm asking for other parties, not myself. I was an option MM for many years and paid double SS tax. It make no sense to me that claiming that you are a professional trader for tax treatment would still provide you an opportunity to avoid your SS tax, as you claiming it to be a business, not investing. That is the claim to get that status. Sole props and LLC are both stuck with it.

With regard to the home office, the IRS has standardized that deduction beginning in tax year 2013. http://www.irs.gov/Businesses/Small...d/Simplified-Option-for-Home-Office-Deduction. If you use this formula, you are unlikely to get audited for it.

1245
 
1245 said:
loyek590, I appreciate your response, however the response from a tax expert would make me more comfortable, as I'm asking for other parties, not myself. I was an option MM for many years and paid double SS tax. It make no sense to me that claiming that you are a professional trader for tax treatment would still provide you an opportunity to avoid your SS tax, as you claiming it to be a business, not investing. That is the claim to get that status. Sole props and LLC are both stuck with it.

With regard to the home office, the IRS has standardized that deduction beginning in tax year 2013. http://www.irs.gov/Businesses/Small...d/Simplified-Option-for-Home-Office-Deduction. If you use this formula, you are unlikely to get audited for it.

1245
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right, that as always been the debate, to trade as an entity and pay se tax or stay independent.

Trader status has nothing to do with that. It was a law passed back in the last century, like 1990 or early 2000 when everybody was day trading. I suppose the good thing is you can lose money every year and write off your expenses without the IRS claiming it is just a hobby.

ok, glad I could help, I'll move on and wait for Robert. I always take his word as the final word. One of these days when I go 100% legit I'm going to hire him to do my taxes.
 
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